Managed funds have represented a focal point of the Australian financial services industry over the past two decades but it is now clear that the failure of many fund managers to appropriately navigate the global financial crisis has caused many investors to question the ultimate value they generate.
Research undertaken by Investment Trends has served to underline the degree to which the global financial crisis and the relative underperformance of many managed funds has prompted investors to look at both direct investment and active share trading.
It appears active managers have been particularly negatively perceived in circumstances where, when the chips were down, they were not seen to have delivered on their promise of outperformance. This, in turn, has served to reignite the longest running of all investment debates — active versus passive.
When this debate, the findings of the Investment Trends research and the advent of a fee-for-service for financial planners is taken into account, it becomes inevitable that fund managers must confront their own reality with respect to fees and alter their models accordingly.
Coupled with any re-examination of fees by funds managers must also be the recent analysis by leading financial services specialist lawyer, Noel Davis that there exists scope for investors to litigate in circumstances where the fees charged by funds managers do not appropriately reflect the returns they generate.
All of this is as it should be. Financial planners have had to alter their remuneration models in the move away from commissions, dealer groups are currently having to review their models, including volume rebate arrangements, and it follows that the product manufacturers should also be looking at the way they do business.
Also being questioned are the commercial models being utilised by research houses, with the principal of van Eyk Research, Mark Thomas, critical of the model utilised by competitors such as Lonsec, Zenith and Morningstar. It will have escaped no one’s attention that van Eyk’s research mandate with a major dealer group, Count Financial, is currently under review.
While a good deal of uncertainty last week remained with respect to which of the major parties would ultimately form Government in Australia, the financial services industry is well aware that a bi-partisan approach exists to the need to separate advice from product sales.
It seems while financial planners have been the first to be affected, changes will ultimately occur all along the financial services food chain.
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